Macro Musings with David Beckworth Steven Kelly on the Challenges of Treasury Equity Funding for 13(3) Facilities
9 snips
Feb 17, 2025 Steven Kelly, Associate Director of Research at the Yale Program on Financial Stability, dives into the Treasury Equity Model used in the Federal Reserve's emergency lending. He discusses its historical context, focusing on the 13(3) facilities and their evolution during crises. Kelly highlights challenges of equity funding amid recent banking turmoil, and critiques how political dynamics complicate fiscal decisions. The conversation also touches on the balance between liquidity needs and moral hazards, illustrating the intricate dance between finance and policy.
AI Snips
Chapters
Transcript
Episode notes
13(3) Lending
- Section 13(3) of the Federal Reserve Act allows the Fed to lend beyond its typical discount window authorities, primarily to non-banks.
- It requires a supermajority of the Fed board to authorize lending under "unusual and exigent circumstances."
Dodd-Frank Impact
- Dodd-Frank amendments to Section 13(3) mandate broad-based facilities, preventing the Fed from rescuing single firms.
- This aims to avoid picking winners and losers and addresses public anger over bailouts like AIG.
Maiden Lane and Treasury
- In 2008, the Fed considered an indemnity from Treasury for the Maiden Lane facility, created to house Bear Stearns' assets.
- Treasury declined, but the Fed proceeded, demonstrating a preference for Treasury backing but not a requirement.